Things have been bleak on Wall Street lately, and many investors are wondering if they should call it quits. After all, it's been a pretty good run on Wall Street across the last 18 to 24 months.
Don't do it. The next leg up for stocks could be even bigger.
It's true that there are definite causes for concern. Recent disappointing employment numbers for May show the uphill climb for the jobs market isn't getting easier. Fears about federal spending and an impasse over the debt ceiling have many worried about America's credit rating and whether Uncle Sam has any resources left to lift the economy. The list goes on, and I'm painfully aware of the challenges. (For instance, read my 3 reasons to panic about Obama's economic plan).
But it's not all gloom and doom out there. Allow me to briefly cover 11 reasons why stocks may not be in as bad a shape as you may think:
Companies are Flush With Cash: Stocks are hoarding the most cash in history. As of the first quarter, non-financial U.S. companies held $1.84 trillion in cash, a whopping 27% more than in early 2007 before the recession. Yes, it's good to have a rainy day fund "“ but at some point, companies have to put that cash to work hiring new employees or buying equipment or expanding operations.
Corporate Bonds are Free Money for Stocks: Additionally, with interest rates so low, you'd be silly NOT to borrow cash if you're a company in good standing. Take Google (NASDAQ: GOOG), which floated its first ever bond offering for $3 billion a month or so ago. Why take on debt despite an already huge cash pile? Well, because investors snapped up three-year notes from the tech giant at a measly 1.25% rate. This "debt" may actually wind up making Google money if the rate of inflation stays high. It really is free money "“ money Google will presumably use to grow.
"?High-Yield' Savings Accounts Aren't: Speaking of low interest rates, so-called "high-yield" savings accounts are in the ballpark of a 1.2% annual rate right now. Not what I'd call high yield at all. The best one-year CD rates this week top out at around 1.3%, and a five-year CD won't get you much better than 2.4% annually. Ask some folks, and that won't even keep pace with inflation "“ so obviously you need to do better to grow your nest egg. That's a big incentive for investors to put their money in stocks.
Treasury Rates Stink: Along the same lines, as of this week, we're looking at about a 3% return on the 10-year T-note. Not very impressive "“ and that's down significantly from a 3.7% rate back in February. If you don't want to tie your money up for a long time, you're looking at less than 0.45% on the 2-year note. Whoopee. (Related Article: Did Bill Gross blew his call on Treasuries?)
Big Dividends in Stocks: If your reason for focusing on CDs or Treasuries is income, investors can still find some tremendous dividend payers that will deliver much better returns. Drugmaker Pfizer (NYSE: PFE) yields almost 3.9% — even after an 18% run so far in 2011.Telecom AT&T (NYSE: T) pays a 5.6% dividend and has tracked the market with over 4% gains in 2011. Tobacco giant Altria (NYSE: MO) is up 10% in 2011 and also yields 5.6%. And there are a host of other lesser-known utilities, conglomerates and the like paying similar yields or better. As we discussed regarding Treasuries and CDs, even if shares flat-line and all you get is your 5% or 6%, that's a heck of a lot better than other investment vehicles "“ which will attract investor capital.
Article printed from InvestorPlace Media, http://www.investorplace.com/45388/bull-market-rebound-stocks-blast-off-soon/.
©2011 InvestorPlace Media, LLC
Comments are currently unavailable. Please check back soon.
Don’t buy another China stock until you read this.
They will be fatal to your portfolio when earnings come out. Sell now!
Plus: The secret to trading IPOs without getting burned.
Get Sam Collins’ top picks for the month.
Sell them before election rhetoric heats up and profits evaporate in the months ahead.
Choose the newsletters you'd like to receive, enter your email address, then click Submit.
Learn more »
Read Full Article »